War Room 06 Dec 2012

Demographics – They are a changin’

War Room•Monthly macro discussion

•Using tools in context

•Update on HiddenLevers Features

•Your feedback welcome

Demographics – They are a changin’

I. Demographics – Where are we now?

II. Demographics – Where are we going?

III. Scenarios

IV. Product Update

HiddenLevers

DEMOGRAPHICS – WHERE ARE WE NOW?

USA – Current age demographics

Reading population graphs

Show distribution of various age groups in a population

• Pyramid = expanding more young people + less old people

• House = stationary young people + seniors emerging

• Kite = contracting more old people + not reproducing

• Wide base pyramid = youth bulge social unrest + recessions

More on population pyramids

INDIAexpanding

BRAZILcontracting

CHINA contracting

(birth policy)

Comparison – Age demographics as Destiny

Middle-EastYouth Bulge Evident

Egypt

Jordan

Gaza

Yemen

USA – current diversity demographics

• Minority babies exceeded white babies in late 2011

• Recent projections show whites falling below 50% of total population by 2050.

US Election Demographics: 1980 vs 2012

88%

10% 2%

1980 Presidential ElectionSources: UConn Roper Center Archives, 2012 Exit Polling

72%

13%

10%5%

2012 Presidential Election

White Black Hispanic Other

• Brookings Institute: Minorities likely decided 2012 election

• 2012 - most racially polarized election in history

DEMOGRAPHICS – WHERE ARE WE GOING?HiddenLevers

US Age Demographics - Projected

US population aging rapidly, but base of pyramid should remain in tact

2010 2050

USA Age Demographics - International Context

bottom line1. USA in better shape than Europe + Japan2. USA in no worse shape than China

• US fertility rate at roughly replacement level of 2.1, compared to Japan at 1.36

• US non-immigrant population is aging rapidly, as in Europe + Japan

(US is one generation behind them)

• Majority of US population growth to 2050 expected to be via immigration (contrast to 0 immigration in Japan)

• Despite aging of America, US working age population in 2050 will be around 300 million, equaling today’s total population

Japan: Will USA follow same pattern?

healthy age demographics … not so much

Japan: Demographic Disaster in Slow-Motion

Japan population aging into dustbin

Who you callin’ dependent?

Japan: Demographics + GDP

bottom lineYOUNGER POPULATION =

SUSTAINABLE GDP GROWTH

I knew it was da yoots.

USA – Diversity ProjectionsVirtually all future US population growth among minorities

• White + Black steady. Hispanic grows most

• Population growth since 1980 from immigration: 58%

• Population growth until 2050 from immigration: 80%

• GDP growth depends on education of immigrants

No, we are not turning Japanese

Fruits

Immigration – Busted Myths

Myth

1. Mexicans coming in droves

2. Immigrants taking US jobs

3. Immigration at all-time highs

Reality

• Net Migration from Mexico now negative• border arrests down 50% since 2008• Illegal immigrant population not growing

• 12.5% of population, 15% of workforce• overrepresented due to aging domestics

• 14.9% of population was immigrants in 1890. Currently 12.5%

• Two thirds legal, one third illegal• 10.8 illegals – 40% came in legally

DEMOGRAPHICS - SCENARIOSHiddenLevers Baby Bust Brain Drain Beneficiary

Downside Scenario: Aging Baby BoomersSF Federal Reserve

• Direct relationship between age demographics + P/E ratios

• Baby boomers aging, withdrawing from markets

• Downturn continues into 2020’s

Upside Scenario: Brain Drain Beneficiaries

bottom linedeveloped country realities mean

immigration is a necessity for growth

Smart immigration can avert Baby Bust

• Merit-based immigration reform

• Making it easy for world’s best + brightest to come to USA

• Educating children of immigrants already here

• Smart immigrants = GDP growth back above 3%

Guidance

1. Successful immigration form based on merit

2. GDP growth back above 3% due to immigration

3. Increased spending due to prime working-age immigrants

4. Only chance for GDP growth in developed countries

Demographics – Baby Bust or Brain Drain Beneficiary?

Guidance

1. Baby Boomers withdrawing assets to fund retirement

2. GDP stagnant to declining, similar to Japan

3. Retail Sales takes a hit as Boomers stop spending

5. SF Fed research projects nearly 50% drop in S&P

HiddenLevers – Product Update

• Interactive Lead Generation App

• Integrations: - Schwab Portfolio Center - Fortigent

• UI: Buttons + Sorting of Advanced Stats

Coming soon:

1. PDF-friendly versions of all HiddenLevers pages

2. Annual feedback session - what do you want to see?